Increasing Mortgage

Mike_H_6

Hi,

Not sure about the best place to put this query as it covers several areas, so apologies if it's in the wrong place.

I currently rent out my house (which has a mortgage on it for about 50% of it's value) and make £200 profit per month. As this is taxable (I've claimed back all I can against house expenses etc) and I'm in the 40% bracket, this costs me £80 per month in tax.

My idea is that I take out another mortgage on the house (£40,000 over 10 years) which (at 6%) has interest repayments of £200 per month. These can be offset against the profit that I make, and therfore I will pay no tax on the rent coming in on the house.

So I now have £40000 to invest in a tax efficient way, and I need it to return me anything more than £120 per month (the actual profit that I was making, after tax) to be better off.

Does this all sound feasible, or have I missed something?

Mike

UK007BullDog

The rental of your property has to cover 125% of your interest only mortgage.

So if your rent is £125 per month then your mortgage payment can be no less than £100.

There are lenders that will do 100% but the rates and fees are a lot higher.

I guess it would be best for you to speak to a mortgage broker and also an accountant I guess for the best advice.

Mike_H_6

UK007BullDog wrote: »

The rental of your property has to cover 125% of your interest only mortgage.

So if your rent is £125 per month then your mortgage payment can be no less than £100.

There are lenders that will do 100% but the rates and fees are a lot higher.

I guess it would be best for you to speak to a mortgage broker and also an accountant I guess for the best advice.

Ah, I see - that's the flaw in my plan then!

Thanks for the response

silvercar

You can claim the mortgage interest as an allowable expense of your letting business only upto the value of the property when you first started letting it.